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Study Charts Huge Surge in Federal Student Loans Since 1990

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Federally guaranteed student loans taken out since 1990 have equaled the total amount borrowed through such loans in the 1960s, '70s, and '80s combined, a new report concludes.

The report, released by the Education Resources Institute, a private, nonprofit corporation that provides education loans that are not federally backed, projects that the current level of borrowing will continue to skyrocket, more than doubling by 2000.

"We now have major education debt, which we didn't have years ago, that extends over a very long period of time for students and the families," said Ted Freeman, the institute's president.

Mr. Freeman added that he hoped the report would sound a warning signal to families that may be borrowing more than their budgets can handle. "They might not even realize just how high their monthly payments will be," he said.

But higher-education officials criticized the report's "alarmist" tone, arguing that the increased borrowing was an expected result of policy changes made in 1992, and that the projections of future borrowing are too high.

David Longanecker, the Department of Education's assistant secretary for postsecondary education, said in an interview that such "overstated" projections didn't necessarily help students.

"Much as I want to win the battles [on student-aid funding], I don't want to scare the people in this country into not sending their kids to college," he said.

The study shows that most of the recent increase in borrowing took place in 1993 and 1994, when loan volume increased a total of 57 percent from 1992.

Policy Changes

The report attributes that increase to the Higher Education Act's 1992 reauthorization, in which Congress created a new component of the guaranteed-loan program that allowed all students, regardless of need, to obtain loans that are federally backed but whose interest is not federally subsidized.

That legislation also increased the annual and cumulative loan limits for the subsidized programs for students and removed limits entirely from the Parent Loans for Undergraduate Students (PLUS) program, under which parents can borrow for their children's college costs.

Those changes essentially opened the floodgates for limitless borrowing, the report says. Students borrowed more than $4.7 billion through unsubsidized loans in fiscal 1994, for example, a jump of 365.9 percent over the previous fiscal year. For fiscal 1995, those loans are projected to reach $13.2 billion, an additional 178.4 percent increase.

Based on the current rate of borrowing, the institute projected that total annual student-loan borrowing will jump from $23 billion in 1995 to $50 billion by 2000.

In addition, a survey accompanying the report found that the segments of the population with the largest increases in college debt were students at public colleges and universities and students with "the highest need," including older students, part-time students, and minority students.

Mr. Freeman said he was particularly concerned about families borrowing under the PLUS program, for which he said there is no test of families' ability to repay.

He also contended that the lack of limits in the PLUS program allowed universities to continue to raise tuition without having to worry about losing students.

Mr. Freeman said the institute--which offers a variety of loans for college students and their parents, professional students, and parents sending children to private elementary and secondary schools--does not work with federal or state loan programs. Unlike the federally backed PLUS program, the institute caps the amount families can borrow.

Projections Criticized

Since its release, the report's predictions have encountered criticism from several quarters.

Mr. Longanecker said the department projects that loan volume will reach only $40 billion, not $50 billion, by 2000.

Terry W. Hartle, a vice president of the American Council on Education, also questioned the findings. Congress greatly expanded eligibility for loans in the early 1990s, Mr. Hartle said, and if anything, legislators are likely to restrict access in the near future.

And Lawrence Gladieux, the College Board's executive director for policy analysis, said that the report "hyped the headlines" on loan volume.

The problem lies in the lack of grant money for low-income students, not in borrowing itself, Mr. Gladieux told reporters at a Sept. 27 briefing on the College Board's financial-aid predictions. "I think we ought to get more specific about our concerns," he said.

Copies of the report, "College Debt and the American Family," care free from the Education Resources Institute, 330 Stuart St., Suite 500, Boston, MA 02116; (617) 426-0261, Ext. 4214.

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